1.3 Flashcards
The choice of methods that a parent uses on its books to account for its investment in a subsidiary will affect the:
Consolodating Process
Consolodated Financial Statements
The method a parent uses on its books to account for its investment in a subsidiary will affect the consolidating process, but the choice of methods will not affect the final consolidated financial statements. The final consolidated financial statements will be the same regardless of the method used by the parent on its books; only the details of the process of developing those statements will be different.
Under GAAP, which of the following can be issued as the primary form of public financial statement disclosure for a parent and its subsidiaries?
Parent only Statement
Separate Parent and Subsidiary Statements
Consolidated Statements
Consolidated Statements
The results of the consolidating process are recorded in the books of the:
Parent
Subsidiary
Neither, would be on the consolidating worksheet
Under IFRS the asset goodwill may be recognized
Goodwill can only be recognized if it is acquired by purchase.
Under IFRS, a parent may exclude a subsidiary from consolidation if all of the following conditions exist, except:
It is wholly or partially owned and its other owners do not object to nonconsolidation.
It reports only one class of stock in its balance sheet.
Its parent prepares consolidated financial statements that comply with IFRS.
It does not have any debt or equity instruments publicly traded.
It reports only one class of stock in its balance sheet.
Which statement is true with respect to noncontrolling interest?
IFRS permits recording noncontrolling interests at either fair value or the proportionate share of the value of identifiable net assets of the acquiree.
In the preparation of combined financial statements, would the following issues be treated in the same way as when preparing consolidated financial statements or in a different way?
Minority Interest
Foreign Operations
Different Fiscal Periods
All treated the same way.
Which of the following legal forms of business combination will result in the need to prepare consolidated financial statements?
Merger
Acquisition
Consolidation
Only an acquisition form of business combination will require the preparation of consolidated financial statements. In the merger and consolidation forms of business combination, only one firm will remain after the combination. Therefore, there will not be two (or more) sets of financial statements to consolidate.
During 20x8, a firm discontinued a component qualifying for separate disclosure within the income statement. The disposal was completed before the end of 20x8 and resulted in a $300 disposal gain. The component earned $400 in 20x7 but lost $100 (negative income) in 20x8. The 20x7 income statement reported income from continuing operations (IFCO) of $6,000. The 20x8 income statement reported $7,000 of net income. Determine the following two amounts:
IFCO for 20x7 as it is reported comparatively in the 20x8 statements
5600
IFCO for 20x8
6800
In 20x5, a firm decided to discontinue a segment with a book value of $200 million and a fair value of $250 million. The cost to dispose of the segment in 20x6 is estimated to be $10 million. In the 20x5 income statement, what amount of disposal gain or loss will be reported in the discontinued operations section?
$ -0-
The amount of the estimated gain is $40 because the cost of disposal reduces the gain. However, estimated disposal gains are not recognized. Only actual gains are recognized because nonfinancial assets generally are not written up. Estimated disposal losses are recognized, however.
On April 30, 20X5, Carty Corp. approved a plan to dispose of a segment of its business. The disposal loss is $480,000, including severance pay of $55,000 and employee relocation costs of $25,000, both of which are directly associated with the decision to dispose of the segment. The firm is a calendar-fiscal year firm, and the segment’s operating loss for the entire year (20X5) through the date of disposal was $120,000.
Before income taxes, what amount should be reported in Carty’s income statement for the year ended December 31, 20X5, as the total income effect (loss) from discontinued operations?
The $600,000 total loss from discontinued operations is the sum of the operating loss ($120,000) and the loss on disposal ($480,000). The two amounts, $120,000 and $480,000, are disclosed separately but together comprise the total loss on the discontinued operation. The $480,000 answer does not include the operating loss. When a qualifying segment is discontinued, the results of its operations are separated from income from continuing operations.
Which of the following transactions qualify as a discontinued operation?
Approved sale of a segment that represents a strategic shift in the entities operations.
